We greatly appreciate the opportunity to comment on the U.S. Department of Housing and Urban Development (HUD) request for informal input on Request for Information, FR-6155-N-01 Review of HUD Policy in Opportunity Zones.
As the designated Chair of the White House Opportunity and Revitalization Council, we recognize the Secretary of HUD is exploring all the levers the Department can pull to make opportunity zones vibrant economic engines for all residents living within the zones.
Across the country, thousands of communities in or near an opportunity zone are embarking upon one of the most profound experimental economic programs in generations. Structured correctly, opportunity zone investments can direct billions dollars in private investment toward the kind of new development, skills training and infrastructure upgrades these communities so badly need, including the creation of affordable supportive housing.
Implemented without forethought to potential consequences like gentrification could mean the opportunity zone initiative becomes a detriment to those Americans living in them with very low incomes or, worse, a cause of displacement that creates more housing instability across the country.
That’s why it is critical that qualified opportunity funds guiding these investments—the pools of investable money collected and invested in opportunity zone businesses and projects—are tasked by the HUD and the U.S. Department of Treasury (Treasury) to screen potential projects for their community benefits like affordable housing development, not just their potential economic returns.
Federal government policy and rules should make it clear qualified opportunity funds should work with community leaders and longtime community pillars like universities, Community Development Financial Institutions (CDFI), housing and services providers, and health centers to connect investors with worthy projects that will yield a positive social impact. They should focus on resource-starved infrastructure projects that benefit local and regional economic ecosystems, and avoid projects that increase inequality or drive out longtime residents.
It should be the first priority of federal policy to ensure any possible gentrification as a result of opportunity zone investment does not end up displacing or further disenfranchising those who the initiative aims to help lift up and place on a pathway toward thriving.
The Federal Reserve Bank of New York has joined with the U.S. Impact Investing Alliance and the Beeck Center for Social Impact and Innovation to develop a formal framework for evaluating potential investments. The principles they outlined include community engagement, equitable community benefits, transparency and measurement so that progress on objectives can be tracked and improved upon.
We would urge HUD and Treasury to adopt these same principles for opportunity zone investments and we would also add other considerations, focused on outcomes:
- Does an investment help locals? Residents of low-income communities often need affordable housing, good jobs, skills training, access to health care and other social services. This must form the basis of projects selected for investment. If, for example, opportunity zones create a gentrification effect that forces those now relying on affordable housing out of their homes and neighborhoods, CSH believes the overall mission of opportunity zones will have been lost.
- Does an investment build sustainable and resilient infrastructure? This question is often ignored when the time horizon of a project is long. But because an investor must hold an opportunity zone investment for 10 years to reap the maximum tax benefits, we anticipate a shift to longer-term planning is very much embedded in the fundamentals for the opportunity zone initiative. This longer-term planning should continuously monitor potential gentrification and its effects on current residents, and the real-time and future needs for affordable supportive housing to meet the demand for such within the zone.
Opportunity zones can be the kind of transformative program that changes this country for the better while also benefiting investors. What’s needed is a mechanism to ensure it delivers the intended societal gains alongside financial ones, and CSH urges HUD and Treasury to move forward with policy with this goal in the forefront of your decision-making around opportunity zones.
As funding flows into the zones, investors must implement a framework that achieves both investment security and community growth that is fair and equitable for everyone living within the zone.
The tax law created powerful incentives for investment in underserved communities. The needs are there. It falls to all of us to make sure they are met.
Neighborhoods are gentrifying throughout our country, and CSH is concerned that the new Opportunity Zones could make matters even worse. These new Opportunity Zone Funds provide massive tax benefits for development in under-invested zip codes; very often these are low-income neighborhoods where even a small increase in property values can lead to rent increases and massive displacement of existing residents.
As the law stands now, Opportunity Zone investments are not required to be used for affordable rental housing and supportive housing, nor are Opportunity Zone investments required to be in line with the priorities of a neighborhood's long-term residents. The U.S. Department of Treasury has a chance to change that with the regulations they produce to govern Opportunity Zone Funds and the overall investments flowing from them.
CSH is calling on the Treasury Department to implement a requirement that Opportunity Zone investments must account for the potential of increased rent and offset such with the production or preservation of affordable rental housing in that given Zone. Regulations should also require that developments eligible for Opportunity Zone tax benefits are those that engage in a public input and approval processes with long-term residents in the neighborhoods. Engaging them specifically on the proposed development(s).
Simply requiring “transparency” by mandating Opportunity Zone administrators report outcomes would merely be an after-the-fact exercise. Without regulations upfront to protect long-term residents from displacement and also ensure real benefits for them, the reporting will be of little comfort or benefit to those who lose their housing.
In summation, CSH strongly believes proposed projects in Opportunity Zones should include permanently affordable rental housing on which supportive housing relies. And we call upon the U.S. Department of Treasury to issue strong and clear regulations for Opportunity Zone investments that require a focus on extremely low-income people, expanding affordable rental housing options, and supporting the neighborhood/Zone development vision of long-term residents.